This study focuses on the impacts that trade and technology have on the wages of skilled and low-skilled workers in the Australian manufacturing sector. The rough concordance of the increase in trade of manufactured goods with developing countries and the relative decline in the demand for low-skilled labour in many OECD countries has led to the popular belief that trade liberalisation is responsible for the immiseration of low-skilled labour in these countries. This is reflected in the rising wage differentials between skilled and low-skilled labour. A counterargument to this proposition is that skill-biased technology is responsible for the increase in the relative demand for skilled labour in most developed countries. This increase can also be seen in a rise in wage differentials. The primary objective of this study is, therefore, to empirically examine the hypothesis of whether trade and / or skill-biased technology can be used to explain the rising wage differentials in the Australian manufacturing sector. The empirical analysis is based on quarterly data spanning the period from 1983(1) to 1996(2).

In this thesis, the significance of the topic is examined in the Australian context and the relevant theoretical issues and empirical studies are reviewed. After taking account of non-stationarity in the time series, cointegration techniques and causality tests are employed to examine the hypothesis within a dynamic multi-variate framework. Although no cointegration is found, this study shows that technological change and the decline in trade union membership have Granger caused the rising wage differentials in the Australian manufacturing sector. In the light of these findings, some relevant policy issues are examined.